From 1 January 2016, companies that meet the eligibility requirements of a small entity have the choice to follow the new requirements of FRS 105.
To be eligible, a company must be below two of these three thresholds:
- Turnover £632,000
- Balance sheet total £316,000
- No. of employees 10
The FRS 105 requirements are meant to simplify financial reporting, thereby reducing the time and costs involved in preparing accounts. But moving to any new financial reporting regime needs careful planning to ensure a smooth transition and avoid unexpected problems.
Here are our 5 top tips to help you plan the move to FRS 105:
- Identify the date of transition to FRS 105 – this is the earliest date presented in relation to the comparative period. An opening balance sheet must be prepared at this date in accordance with FRS 105.
- Review existing accounting policies and compare with FRS 105 requirements to identify any necessary changes in accounting policy. FRS 105 may require different valuation methods for assets or liabilities, for new asset and liabilities to be recognised or existing ones to be derecognised.
- Keep detailed records of the accounting adjustments made on the transition to FRS 105 – these will provide an audit trail and can be useful even if your accounts are not subject to audit, for example in the event of a tax investigation.
- Consider any wider implications of the transition; are distributable reserves affected, impacting on dividend payments? Will the changes impact on loan covenants? Do systems need to be updated?
- The micro-entity regime is optional, and for some companies it may be better to adopt FRS 102 Section 1A for Small Entities, for example in the case of a growing company. It is wise to consider all of the options and think about the future direction of your company.